The prevailing “wisdom” of this sub is that TSLA is a good business with an overvalued stock. I am here to illustrate that this is not the case – the stock is not overvalued. The primary reason being, you cannot expect to pay the same earnings multiple for companies with a vastly different earnings growth trajectories. So what other company and stock can we compare that is as at the same size as Tesla with very high growth prospects and is widely considered a good business AND a good investment? Amazon!
Over the last 12 months, Tesla's earnings multiple is actually 16% lower than Amazon's, and calculated from 2023 forecasted earnings, Tesla's earnings multiple is still 3% lower than Amazon's. Amazon's earnings forecasts have been too optimistic – Amazon missed analyst estimates 3 out of the last 4 quarters, while Tesla beat analyst estimates every single quarter in the past year. Moreover, Tesla's 2023 earnings forecast has only had upwards revisions (7 of them) in the past month, while Amazon has had 5 upwards revisions and 6 downwards revisions from analysts. Finally, the range between the low and high estimates for Amazon is much wider than the range for Tesla, indicating higher earnings uncertainty.
So to sum it up, Tesla is actually less richly valued than Amazon based on current and 2023 earnings multiples, the analysts have consistently underestimated Tesla despite revising earnings estimates up while analysts have consistently overestimated Amazon despite revising earning estimates down, and Tesla earnings are more certain than Amazon's. As a reminder, Tesla has much more room to grow with only 1.5% of the car market compared to Amazon's 40% share of online retail.
| Stock | Price to trailing 12 month earnings (Source) | Price to 2023 forecasted earnings (8/15 closing price divided by earnings forecast) | Last 4 quarter results relative to earnings forecast (Source) | Earnings 2023 forecast revisions from analysts over last 4 weeks (Source) | 2023 earnings forecast high estimate divided by low estimate (Source) |
|---|---|---|---|---|---|
| TSLA | 106.66 | 63.95 | 4 earnings beats | 7 revised up, 0 down | 1.9 |
| AMZN | 126.71 | 65.98 | 3 earnings misses, 1 beat | 5 revised up, 6 revised down | 2.23 |
In fact, I believe that analysts are way underestimating Tesla earnings potential. Based on my own estimate, I believe Tesla will actually accomplish 2023 earnings of $23.81 per share (compare to analyst consensus of $14.51) by expanding revenue over 50% in 2023 with new factories ramped up in Berlin and Austin, gross margins well in excess of 30% due to economies of scale and manufacturing efficiencies at their new factories as well as near 100% margin software sales, while operating expenses grow slower than revenue growth. If this comes to pass, and investors are willing to pay an Amazon-like earnings multiple for 2023, the stock would be worth 65.98*$23.81= $1,570, or nearly 70% higher than it is today.
In other words, the trend of analysts underestimating Tesla combined with Tesla's relatively reasonable valuation multiple (as discussed above) could provide a tailwind to the stock over the next 12-16 months and take it to new highs.
Leave a Reply